Citibank Europe plc & Citibank Holdings Ireland Ltd. Pillar 3 Disclosures

Transcription

1 Citibank Europe plc & Citibank Holdings Ireland Ltd Pillar 3 Disclosures 31 December

2 TABLE OF CONTENTS Forward Looking Statements Introduction Background and context Areas Covered Basis of Consolidation & Disclosure Operation, Structure and Organisation CHIL & CEP s Capital Position at 31 December Capital Resources and Minimum Capital Requirement Capital Resources Minimum Capital Requirement Capital Resources vs Minimum Capital Requirement Leverage Ratio Capital Buffers Risk Management Objectives and Policies Risk Overview Risk Mission Credit Risk Credit Risk Overview Credit Risk Management Credit Risk Exposure Securitisation activity Impairment of Financial Assets Credit Quality Analysis Credit Risk Mitigation Market Risk Trading Book Risk Management Non-Trading Book Risk Management Operational Risk Non-Trading Book Exposures Non-trading Book Equity Exposures Liquidity Risk Remuneration Statement Citi s Compensation Philosophy Remuneration Governance Design and Structure of Remuneration Key Remuneration Policies Link between Pay and Performance Appendix 1: CEP Senior Management and Board Disclosures Appendix 2: Asset Encumbrance Disclosures

3 LIST OF CHARTS & TABLES FIGURE 1: HIGH LEVEL ORGANISATION CHART... 7 FIGURE 2A: SUMMARY OF CHIL S KEY METRICS AS AT 31 DECEMBER ( BN)... 8 FIGURE 2B: SUMMARY OF CEP S KEY METRICS AS AT 31 DECEMBER ( BN)... 8 TABLE 1A: OWN FUNDS CHIL & CEP AT 31 DECEMBER TABLE 1B: OWN FUNDS CHIL & CEP AT 31 DECEMBER TABLE 2A: REGULATORY CAPITAL RESOURCES RECONCILIATION TO AUDITED FINANCIAL STATEMENTS CHIL TABLE 2B: REGULATORY CAPITAL RESOURCES RECONCILIATION TO AUDITED FINANCIAL STATEMENTS CEP TABLE 3: CAPITAL INSTRUMENTS FEATURES TABLE 4: CEP & CHIL MINIMUM PILLAR 1 CAPITAL REQUIREMENTS TABLE 5: EU OV1 OVERVIEW OF RWAS 31 DECEMBER TABLE 6A: CAPITAL SURPLUS OVER MINIMUM CAPITAL REQUIREMENT AND TIER 1 RATIO CHIL TABLE 6B: CAPITAL SURPLUS OVER MINIMUM CAPITAL REQUIREMENT AND TIER 1 RATIO CEP TABLE 7A: SUMMARY RECONCILIATION OF ACCOUNTING ASSETS AND LEVERAGE RATIO EXPOSURES FOR CHIL TABLE 7B: SUMMARY RECONCILIATION OF ACCOUNTING ASSETS AND LEVERAGE RATIO EXPOSURES FOR CEP TABLE 8: LEVERAGE RATIO COMMON DISCLOSURE FOR CHIL & CEP TABLE 9: SPLIT OF ON BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES AND SFTS) FOR CHIL & CEP TABLE 10: GEOGRAPHICAL DISTRIBUTION OF CREDIT EXPOSURES RELEVANT FOR THE CALCULATION OF THE COUNTERCYCLICAL BUFFER 31 DECEMBER TABLE 11: AMOUNT OF INSTITUTION-SPECIFIC COUNTERCYCLICAL BUFFER 31 DECEMBER TABLE 12: EU CCR3 CRR EXPOSURES BY REGULATORY PORTFOLIO AND RISK WEIGHT (STANDARDISED APPROACH) 31 DECEMBER TABLE 13: DERIVATIVE FINANCIAL ASSETS 31 DECEMBER TABLE 14: NOTIONAL VALUE OF CEP S CDS TRANSACTIONS 31 DECEMBER TABLE 15: EXPOSURE TO CREDIT RISK TABLE 16: EU CR5 STANDARDISED APPROACH 31 DECEMBER TABLE 17: GEOGRAPHICAL ANALYSIS OF EXPOSURES TABLE 18: INDUSTRY ANALYSIS OF EXPOSURES TABLE 19: RESIDUAL MATURITY OF CREDIT EXPOSURES TABLE 20: AGGREGATE AMOUNT OF NON-TRADING BOOK SECURITISATION POSITIONS HELD 31 DECEMBER TABLE 21: IMPAIRED EXPOSURES AND PROVISIONS INDIVIDUAL & COLLECTIVE TABLE 22: TYPES OF IMPAIRMENT PROVISIONS TABLE 23: MOVEMENTS IN IMPAIRMENTS DURING AND TABLE 24: CREDIT QUALITY ASSESSMENT SCALE TABLE 25: SIMPLIFIED SUMMARY OF RISK WEIGHTINGS BY CREDIT QUALITY STEP TABLE 26: CQS ANALYSIS OF EXPOSURE BEFORE AND AFTER CREDIT RISK MITIGATION TABLE 27: EXPOSURE VALUES COVERED BY ELIGIBLE FINANCIAL COLLATERAL AND GUARANTEES TABLE 28: PORTFOLIO VAR TABLE 29: EU MR1 MARKET RISK UNDER THE STANDARDIZED APPROACH TABLE 30: SENSITIVITY OF NET INTEREST INCOME TABLE 31: MINIMUM CAPITAL REQUIREMENTS IN RESPECT OF OPERATIONAL RISK BY BUSINESS LINE TABLE 32: NON-TRADING BOOK EQUITY EXPOSURES 31 DECEMBER TABLE 33: LCR BREAKDOWN AS AT 31 DECEMBER TABLE 34: FIXED & VARIABLE COMPENSATION FOR MATERIAL RISK TAKERS IN CEP TABLE 35: REMUNERATION BANDING FOR ANNUAL COMPENSATION OF INDIVIDUALS EARNING AT LEAST EUR 1 MILLION TABLE 36: DIRECTORSHIPS HELD BY CITIBANK EUROPE PLC BOARD OF DIRECTORS AS OF 31 DECEMBER (INCLUDING CEP) TABLE 37: ASSET ENCUMBRANCE ANALYSIS OF ASSETS TABLE 38: ASSET ENCUMBRANCE ANALYSIS OF COLLATERAL RECEIVED TABLE 39: ASSET ENCUMBRANCE ENCUMBERED ASSETS/COLLATERAL RECEIVED AND ASSOCIATED LIABILITIES

4 Forward Looking Statements This document contains certain forwardlooking statements. Citigroup cautions readers that no forward-looking statement is a guarantee of future performance. Citigroup s actual results may differ materially from those included in any forward-looking statements, which are indicated by words such as believe, expect, anticipate, intend, estimate, may increase, may fluctuate, and similar expressions, or future or conditional verbs such as will, should, would, and could. Any forward-looking statements are based on management s current expectations and involve external risks and uncertainties including, but not limited to: levels of activity and volatility in the capital markets, global economic and business conditions, including the level of interest rates and exchange rates, the credit environment, unemployment rates, and political and regulatory developments in the U.S. and around the world, as well as the outcome of legal, regulatory and other proceedings. For a more detailed discussion of potential risk factors the reader is directed to Citigroup s Annual Report. Except as required by any competent regulator or applicable law, Citigroup expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in Citigroup s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Citigroup has made or may make in documents it has filed or may file with the SEC, including Citigroup s Annual Report and CHIL s financial statements. 4

5 1. Introduction 1.1. Background and context This document contains the Pillar 3 disclosures for Citibank Europe plc (CEP) and Citibank Holding Ireland Limited (CHIL) (consolidated), collectively the Companies. The Capital Requirements Directive (CRD IV) package, which came into effect on 1 January 2014 and implements the provisions of the Basel Capital Accord in the EU, mandates a framework of capital adequacy regulation for banks and investment firms incorporating three distinct pillars: Pillar 1 prescribes the minimum capital requirements for such firms; Pillar 2 addresses the associated supervisory review process; and Pillar 3 specifies further public disclosure requirements in respect of their capital and risk profile. The disclosures in this document have been made in accordance with the Pillar 3 requirements laid out in the EU prudential rules for banks, building societies and investment firms, as set out in Part 8 of the Capital Requirements Regulations No. 575/2013 (CRR) Disclosures by Institutions. The following disclosures have been made purely for explaining the basis on which the Companies have prepared and disclosed information about capital requirements and the management of certain risks and for no other purpose. They do not constitute any form of financial statement and must not be relied upon in making any investment or judgement on the entity Areas Covered In accordance with Pillar 3 requirements, the areas covered by the Companies Pillar 3 disclosures include CRD IV capital requirements and resources, credit risk, market risk, operational risk, liquidity risk, leverage ratio, non-trading book exposures, securitisation activity, encumbered /unencumbered assets and remuneration disclosures. Information on the Companies CRD IV capital ratios are included also. Some of the areas covered are also dealt within the Companies Annual Report 31 December. In other areas more detail is provided in these Pillar 3 disclosures. For instance, the section on capital requirements includes additional information on the amount of capital held against various risks and exposure classes, and the section on capital resources provides details on the composition of the Companies own funds as well as a reconciliation of accounting equity to regulatory capital. It should be noted that while some quantitative information in this document is based on financial data contained in the Companies Annual Report 31 December, other quantitative data is sourced from the Companies prudential returns and is calculated according to regulatory requirements. The difference between the accounting data and information sourced from the Companies regulatory reporting platform is most evident for credit risk disclosures. Pillar 3 quantitative data is thus not always directly comparable with the quantitative data contained in the Companies Annual Report 31 December. 5

6 1.3. Basis of Consolidation & Disclosure Citibank Holdings Ireland Limited ( CHIL ) and its sole operating entity Citibank Europe Plc ( CEP ) is a global financial services group that strives to provide its client with best in class services across a diverse range of products and geographies CEP is a licenced credit institution regulated by the Central Bank of Ireland (CBI). CEP is 100% owned by CHIL, which is subject to consolidated supervision by the CBI. CEP produce individual (solo) and CHIL produce consolidated regulatory returns for submission to the regulator relating to capital adequacy and balance sheet information. Both CEP and CHIL s Capital Resources have been disclosed for transparency. CEP prepares standalone financial statements and CHIL prepares consolidated financial statements under International Financial Reporting Standards (IFRS). The financial information reported in the consolidated financial statements and consolidated regulatory returns are largely similar, other than presentation. The disclosures in this document are reported at the consolidated level in accordance with the CRD requirements. These disclosures are updated annually in line with the accounting year end as at 31 December and are supplemented by condensed semi-annual disclosures. Unless otherwise stated, all tables are as at 31 December, with prior year comparatives as at 31 December The disclosures are published on the Investor Relations section of Citi s website and complement the group level materials included in the Citigroup and 2015 Annual Reports. The Pillar 3 document is subject to a robust governance process and receives final approval by the CEP Audit Committee and subsequently by the Board of Directors Operation, Structure and Organisation Citigroup Inc. (Citi) is a global diversified financial services holding company incorporated under the laws of the state of Delaware, and whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. Citi has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi currently operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of Citi s Global Consumer Banking (GCB) and Institutional Clients Group (ICG) businesses; and Citi Holdings, consisting of businesses and portfolios of assets that Citi has determined are not central to its core Citicorp businesses. Citi s principal banking (depository institution) subsidiary is Citibank, N.A., a national banking association, with offerings encompassing consumer finance, credit cards, mortgage lending and retail banking products and services; investment banking, commercial banking, cash management, trade finance and e-commerce products and services; and private banking products and services. Significant Citi legal entities other than Citibank N.A. include Citigroup Global Markets Limited (CGML), the primary UK broker dealer (nonbanking) subsidiary, and CEP, Citi s pan- European bank. 6

7 CEP is headquartered in Dublin, and also has three Citi Service Centres ( CSC ) which provide back office services to CEP and other Citigroup affiliates. These service centres are based in CEP s Dublin, Warsaw and Budapest branches. See Figure 1 below for the Organisation Chart. CEP merged with Citibank International Limited (CIL a UK licensed credit institution) on 1 January under the provisions of the EU merger directive (merger by absorption whereby CEP took on all of the assets, liabilities, rights and obligations of CIL) to create an enlarged combined entity with branches in 21 jurisdictions across EMEA. Accordingly the tables and figures in this document for reflect the enlarged CEP entity (i.e. postmerger), whereas the 2015 tables reflect the CEP entity pre-merger. This acquisition was made as part of Citi s continued effort to simplify and rationalise its legal entity structure. CEP offers a wide range of banking products and services to its Institutional Client Group (ICG) client base, augmented by Global Consumer Bank (GCB) services in the UK Branch. The principal ICG businesses are Treasury and Trade Services (TTS), Markets and Securities Services and Banking, servicing a wide range of target market clients including Governments, Public Sector clients, Multinational Corporations and their subsidiaries, large Local Corporates, Financial Institutions and Fund Managers. The principal GCB businesses are UK Consumer Bank and Private Bank which services high net worth clients. FIGURE 1: HIGH LEVEL ORGANISATION CHART CITIGROUP INC (USA) CITICORP (USA) CITIBANK N.A (USA) CITIBANK OVERSEAS INVESTMENT CORPORATION (USA) CITI INVESTMENTS BAHAMAS LIMITED (BAHAMAS) CITI OVERSEAS HOLDINGS BAHAMAS LIMITED (BAHAMAS) CITBANK HOLDINGS IRELAND LTD CITIBANK EUROPE PLC CEP Branches 7

8 1.5. CHIL & CEP s Capital Position at 31 December Figure 2 (a) and (b) illustrates CHIL and CEP s key capital metrics. Both CHIL and CEP s Capital resources consist of Tier 1 capital and continue to maintain capital ratios and resources comfortably in excess of the minimum regulatory requirements. FIGURE 2A: SUMMARY OF CHIL S KEY METRICS AS AT 31 DECEMBER ( BN) Total Capital Resources Total Minimum Capital Required Excess Capital Resources CET 1 Capital Risk Weighted Assets CET 1 Capital Ratio Leverage Ratio % 10.3% FIGURE 2B: SUMMARY OF CEP S KEY METRICS AS AT 31 DECEMBER ( BN) Total Capital Resources Total Minimum Capital Required Excess Capital Resources CET 1 Capital Risk Weighted Assets CET 1 Capital Ratio Leverage Ratio % 11.8% 8

9 2. Capital Resources and Minimum Capital Requirement 2.1. Capital Resources The CRD requires that CHIL and CEP comply with minimum capital standards and maintain a prescribed excess of total capital resources over Pillar I capital requirement. Capital resources are measured and reported in accordance with the CRD. CHIL and CEP s regulatory capital resources comprise of the following distinct elements: Common Equity Tier 1 Capital, which includes ordinary share capital, share premium, retained earnings and capital reserves; Deductions from capital include: - Prudent valuation - Deferred tax relying of future profitability - Significant investments Table 1 shows the regulatory capital resources of CHIL and CEP as at 31 December and 31 December Tables 2 (a) and (b) show the reconciliation between the balance sheet values and the regulatory capital values of the items included in CHIL and CEP s Capital Resources as at 31 December. Further details on the composition of CHIL and CEP s Capital resources are shown in Table 3. - Intangible assets, including goodwill 9

10 Table 1a: Own Funds CHIL & CEP at 31 December At 31 Dec CHIL CEP REGULATION (EU) No 575/2013 ARTICLE Capital instruments and the related share premium accounts 2,089,402 2,324, (1), 27, 28, 29, EBA list 26 (3) of which: Share Capital - 9,554 of which: Share Premium 652,083 1,511,818 of which: Capital Reserves 1,453, ,449 EBA list 26 (3) of which: Other Reserves -15,741-33,549 Retained earnings 5,470,078 6,243, (1) (c) Accumulated other comprehensive income (and any other reserves) (1) Common Equity Tier 1 (CET1) capital before regulatory adjustments 7,559,480 8,568,088 Additional value adjustments (negative amount) -8,756-8,756 34, 105 Intangible assets (net of related tax liability) (negative amount) -340, , (1) (b), 37, 472 (4) Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) -275, , (1) (c), 38, 472 (5) Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) - -14,113 Total Regulatory Adjustments to Common Equity Tier 1 (CET1) -624, ,282 Common Equity Tier 1 (CET1) capital 6,935,309 7,929,806 Tier 1 capital (T1 = CET1 + AT1) 6,935,309 7,929,806 Tier 2 (T2) Capital - - Total Capital (TC = T1 + T2) 6,935,309 7,929,806 Total Risk-Weighted Assets 39,009,209 39,009, (1) (i), 43, 45, 47, 48 (1) (b), 49 (1) to (3), 79, 470, 472 (11) Common Equity Tier 1 (as a percentage of total risk exposure amount 17.78% 20.33% 92 (2) (a), 465 Tier 1 (as a percentage of total risk exposure amount 17.78% 20.33% 92 (2) (b), 465 Total capital (as a percentage of total risk exposure amount 17.78% 20.33% 92 (2) (c) Table 1b: Own Funds CHIL & CEP at 31 December 2015 At 31 Dec 2015 CHIL CEP REGULATION (EU) No 575/2013 ARTICLE Capital instruments and the related share premium accounts 1,985,352 2,230, (1), 27, 28, 29, EBA list 26 (3) of which: Share Premium 631,359 1,473,021 of which: Capital Reserves 1,353, ,979 EBA list 26 (3) Retained earnings 4,555,502 5,293, (1) (c) Accumulated other comprehensive income (and any other reserves) -20,825-38, (1) Common Equity Tier 1 (CET1) capital before regulatory adjustments 6,520,029 7,485,656 Additional value adjustments (negative amount) -3,667-3,667 34, 105 Intangible assets (net of related tax liability) (negative amount) -91,360-91, (1) (b), 37, 472 (4) Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) -2,468-2, (1) (c), 38, 472 (5) Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) - -1,266 Total Regulatory Adjustments to Common Equity Tier 1 (CET1) -97,496-98,761 Common Equity Tier 1 (CET1) capital 6,422,534 7,386,895 Tier 1 capital (T1 = CET1 + AT1) 6,422,534 7,386,895 Tier 2 (T2) Capital - - Total Capital (TC = T1 + T2) 6,464,930 7,429,291 Total Risk-Weighted Assets 21,313,907 21,313, (1) (i), 43, 45, 47, 48 (1) (b), 49 (1) to (3), 79, 470, 472 (11) Common Equity Tier 1 (as a percentage of total risk exposure amount 30.13% 34.66% 92 (2) (a), 465 Tier 1 (as a percentage of total risk exposure amount 30.13% 34.66% 92 (2) (b), 465 Total capital (as a percentage of total risk exposure amount 30.13% 34.66% 92 (2) (c) 10

11 Table 2a: Regulatory Capital Resources Reconciliation to Audited Financial Statements CHIL EUR Thousands Balance per Audited Financial Statements Intangible Assets Adj to Balance Sheet Items for Regulatory Capital Resources Deferred Tax Prudent Valuation Equity Issuance Adjustment Balance per Regulatory Capital Resources Tier 1 Capital Share Capital - - Share Premium 652, ,083 Capital Reserves 1,803,691 (350,631) 1,453,059 Other Reserves (15,741) (15,741) Retained Earnings 5,470,078 5,470,078 Tier 1 Capital Before Deductions 7,910,111 (350,631) 7,559,479 Intangible Assets (340,273) (340,273) Deferred Tax Asset (275,141) (275,141) Prudent Valuation (8,756) (8,756) Tier 1 Capital After Deductions 7,910,111 (340,273) (275,141) (8,756) (350,631) 6,935,309 Total Capital Resources 7,910,111 (340,273) (275,141) (8,756) (350,631) 6,935,309 Table 2b: Regulatory Capital Resources Reconciliation to Audited Financial Statements CEP EUR Thousands Balance per Audited Financial Statements Adj to Balance Sheet Items for Regulatory Capital Resources Intangible Assets Deferred Tax Prudent Valuation Significant Investments Share Capital Adjustment Equity Issuance Adjustment Balance per Regulatory Capital Resources Tier 1 Capital Share Capital 9,991 (437) 9,554 Share Premium 1,862,012 (350,194) 1,511,818 Capital Reserves 836, ,449 Other Reserves (33,549) (33,549) Retained Earnings 6,243,817 6,243,817 Tier 1 Capital Before Deductions 8,918, ,568,088 Intangible Assets (340,273) (340,273) Deferred Tax Asset (275,141) (275,141) Prudent Valuation (8,756) (8,756) Significant Investments (14,113) (14,113) Tier 1 Capital After Deductions 8,918,720 (340,273) (275,141) (8,756) (14,113) (437) (350,194) 7,929,806 Total Capital Resources 8,918,720 (340,273) (275,141) (8,756) (14,113) (437) (350,194) 7,929,806 11

12 Table 3: Capital Instruments Features Capital Instruments Main Features CET1 CET1 1 Issuer Citibank Holdings Ireland Limited Citibank Europe Plc 2 Unique identifier (eg. CUSIP, ISIN or Bloomberg identifier for private placement) Private placement Private placement 3 Governing law (s) of the instrument* Irish Irish Regulatory treatment 4 Transitional CCR rules CET 1 CET 1 5 Post-transitional CRR rules CET 1 CET 1 6 Eligible at solo/(sub-) consolidated/ solo & (sub- )consolidated Consolidated Solo 7 Instrument type (types to be specified by each jurisdiction) Ordinary issued shares with full voting rights Ordinary issued shares with full voting rights 8 Amount recognised in regulatory capital (as of most recent reporting date) 652,083,297 comprising nominal and premium 1,872,003,220 comprising nominal and premium 9 Nominal amount of instrument 1 1 9a Issue price 22,192 15/03/2001 6,348,689 17/04/ ,703 28/09/ ,846 01/01/ /10/2003 1,857,824 31/12/ /12/ ,036 01/01/ 9b Redemption price N/A N/A 10 Accounting classification Share holders equity Share holders equity 11 Original date of issuance 22,192 15/03/2001 6,348,689 17/04/ ,703 28/09/ ,846 01/01/ /10/2003 1,857,824 31/12/ /12/ ,036 01/01/ 12 Perpetual or dated Perpetual Perpetual 13 Original maturity date No maturity No maturity 14 Issuer call subject to prior supervisory approval No No 15 Optional call date, contigent call dates and redemption amount N/A N/A 16 Subsequent call dates, if applicable N/A N/A Coupons / dividends 17 Fixed or floating dividend/coupon N/A N/A 18 Coupon rate and any related index N/A N/A 19 Existence of a dividend stopper No No 20a Fully discretionary, partially or mandatory (in terms of timing) Fully discretionary Fully discretionary 20b Fully discretionary, partially or mandatory (in terms of amount) Fully discretionary Fully discretionary 21 Existence of step up or other incentive to redeem No No 22 Noncumulative or cumulative** Non comulative Non comulative 23 Convertible or non-convertible Non-convertible Non-convertible 24 If convertible, conversion trigger(s) N/A N/A 25 If convertible, fully or partially N/A N/A 26 If convertible, conversion rate N/A N/A 27 If convertible, mandatory or optional conversion N/A N/A 28 If convertible, specify instrument type convertible into N/A N/A 29 If convertible, specify issuer of instrument it converts into N/A N/A 30 Write-dow n features N/A N/A 31 If w rite-dow n, features, w rite dow n trigger(s)*** N/A N/A 32 If w rite-dow n, full or partial N/A N/A 33 If w rite-dow n, permanent or temporary N/A N/A 34 If temporary w rite-dow n, description of w rite-dow n mechanism N/A N/A 35 Positionin subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) All subordinated liabilities All subordinated liabilities 36 Non-compliant transitioned features No No 37 If yes, specify non-compliant features N/A N/A 12

13 2.2. Minimum Capital Requirement CEP complies with the CRR Minimum Capital Requirements, to ensure that sufficient capital is maintained to cover all relevant risks and exposures. For this purpose the firm calculates capital charges for market risk, counterparty risk and operational risk based upon the standardised approach, as well as recognising a number of credit risk mitigation techniques in calculating the charges for credit and counterparty risk. The total Capital Resources must be greater than its Minimum Capital Requirement, allowing for a capital excess to accommodate any additional obligations, such as Pillar 2 charges. CHIL (consolidated) and CEP have the same minimum capital requirement. CEP uses external ratings from External Credit Assessment Institutions (ECAIs), in the calculation of its credit risk capital requirements. To assess the adequacy of its capital to support current and expected future activities, CEP produces regular capital forecasts, taking into account both normal business conditions and stress scenarios. As part of this process, CEP maintains an ICAAP (Internal Capital Adequacy Assessment Process) which documents CEP s risk appetite, regulatory capital requirement and associated policies and procedures. CEP s ICAAP is the result of a detailed assessment of the capital that it considers necessary to cover the risks to which the entity is exposed to. This includes capturing risks which fall outside of the Pillar 1 framework and as well as the risks related to the impact of stress scenarios. To calculate these requirements, CEP has undertaken forecasts of net income, balance sheet and regulatory capital on both a business as usual (base case) basis and downside (stress case) basis to ensure the robustness of its capital adequacy at all times. The ICAAP document includes the following key elements: Summary of Pillar 1 capital requirements Summary of Pillar 2 capital requirements Capital planning over a 3 year horizon 2.3 Capital Resources vs Minimum Capital Requirement Table 4 shows CEP s Pillar 1 Minimum Capital Requirements, which as stated above, are the same as the Minimum Capital Requirements for CHIL. Table 5 was prepared in accordance the early application statement of the EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013. The table represents disclosure Template 4: EU OV1 of the EBA guidelines, and provides the overview of RWAs and minimum capital requirements as of 31 December. Tables 6 (a) and (b) illustrates that CHIL and CEP s Total Capital Resources are in excess of its Pillar 1 Total Minimum Capital Requirement. Capital Resources and Minimum Capital Requirement for CHIL and CEP are monitored and analysed daily. CHIL and CEP continuously maintain a surplus over its Minimum Capital Requirement. 13

14 Table 4: CEP & CHIL Minimum Pillar 1 capital requirements EUR Thousands Capital Requirement 2015 Risk Weighted Assets Capital Requirement Risk Weighted Assets Credit Risk and Counterparty Risk 2,683,526 33,544,077 1,441,141 18,014,257 of which Central governments or central banks 9, ,048 8, ,358 Regional governments or local authorities Public sector entities 17, ,094 3,468 43,346 Multilateral Development Banks 2,138 26,724 4,240 52,996 International Organisations 303 3, Institutions 442,250 5,528, ,688 5,783,599 Corporates 2,065,015 25,812, ,710 10,983,876 Retail 17, ,275 29, ,921 Secured by mortgages on immovable property 14, , Exposures in default 20, ,848 11, ,822 Items associated with particular high risk Covered bonds Claims on institutions and corporates with a short-term credit assessment 78, ,952 39, ,902 Collective investments undertakings (CIU) 183 2, ,540 Equity 2,639 32, Other items 12, ,162 3,071 38,383 Securitisation Positions 526 6, Default fund contributions 495 6, Market Risk 77, ,031 49, ,469 of which Interest Rate Risk 49, ,908 34, ,573 FX Risk 28, ,123 14, ,897 Operational Risk 315,256 3,940, ,076 2,675,955 Credit Value Adjustment 44, , ,225 Total Capital Requirements 3,120,737 39,009,209 1,705,113 21,313,907 14

15 Table 5: EU OV1 Overview of RWAs 31 December RWAs Minimum capital requirements EUR Thousands Credit risk (excluding CCR) 32,489,898 2,599,192 Of which the standardised approach 32,489,898 2,599,192 Of which the foundation IRB (FIRB) approach - - Of which the advanced IRB (AIRB) approach - - Of which equity IRB under the simple riskweighted approach or the IMA - - CCR 1,041,424 83,314 Of which mark to market 1,952, ,216 Of which original exposure 5,052, ,173 Of which the standardised approach 1,041,424 83,314 Of which internal model method (IMM) - - Of which risk exposure amount for contributions to the default fund of a CCP 6, Of which CVA 560,396 44,832 Settlement risk - - Securitisation exposures in the banking book (after the cap) 6, Of which IRB approach - - Of which IRB supervisory formula approach - - (SFA) Of which internal assessment approach (IAA) - - Of which standardised approach 6, Market risk 964,031 77,122 Of which the standardised approach 964,031 77,122 Of which IMA - - Large exposures - - Operational risk 3,940, ,256 Of which basic indicator approach - - Of which standardised approach 3,940, ,256 Of which advanced measurement approach - - Amounts below the thresholds for deduction (subject to 250% risk weight) - - Floor adjustment - - Total 39,009,209 3,120,737 15

16 Table 6a: Capital Surplus over Minimum Capital Requirement and Tier 1 Ratio CHIL EUR Thousands 2015 Total Capital Resources 6,935,309 6,422,534 Total Minimum Capital Requirement 3,120,737 1,705,113 Surplus over Requirement 3,814,573 4,717,422 Tier 1 Capital Resources 6,935,309 6,422,534 Risk Weighted Assets 39,009,209 21,313,907 Tier 1 Capital Ratio 17.78% 30.13% Table 6b: Capital Surplus over Minimum Capital Requirement and Tier 1 Ratio CEP EUR Thousands 2015 Total Capital Resources 7,929,806 7,386,895 Total Minimum Capital Requirement 3,120,737 3,120,541 Surplus over Requirement 4,809,069 4,266,354 Tier 1 Capital Resources 7,929,806 7,386,895 Risk Weighted Assets 39,009,209 21,313,907 Tier 1 Capital Ratio 20.33% 34.66% 16

17 2.4. Leverage Ratio Leverage risk is the risk that excessive growth in exposure or a decrease in capital will lead to an entity becoming more vulnerable to leverage or contingent leverage that may require unintended corrective measures, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets. In accordance with CRR rules, the leverage ratio for CEP is calculated by dividing Tier 1 capital by a non-risk based measure of an institution s onand off-balance sheet exposures. The leverage ratio is a monitoring tool, which allows competent authorities to assess and constrain the risk of building up excessive leverage in their supervised institutions. The leverage ratio metric has been implemented in the EU for reporting and disclosure purposes. According to the CRDIV this is not a binding requirement currently, and during the transitional phase is set at a minimum level of 3%. Implementation of the leverage ratio becomes effective from 1 January 2018, with the proceeding years used to refine the requirement. CHIL (consolidated) and CEP s ratio is in excess of this at 10.3% and 11.79% respectively at 31 December. The final design and calibration of the proposals will be informed by a comprehensive quantitative impact study and as such no account has been taken of these proposed revisions in these ratios Management of Leverage Risk The following points describe CEP s approach to managing the risk of excessive leverage. Daily Capital Monitoring: this is conducted for the Companies capital ratios (Common Equity Tier 1 and Total Capital ratios). The excess capital over Pillar1 and Pillar 2 requirements (including the Individual Capital Guidance and Capital Planning Buffer) and over the internal Capital Action Trigger, are also monitored daily. The latter is an internal trigger set to ensure that the entity holds enough of a capital excess to permit timely management decisions in case of unforeseen short term circumstances. Large exposures in line with regulatory requirements are monitored on a daily basis against internal monitoring limits. The above are monitored and controlled through the monthly ALCO process. The ALCO is the primary governance committee for the management of CEP s balance sheet. Amongst the responsibilities of the ALCO are the provision of balance sheet oversight of trends and mix, ensuring prudent legal entity balance sheet management and overseeing the local regulatory requirements related to the balance sheet. The following disclosure templates provide additional detail on the Leverage Ratio: 17

18 Table 7a: Summary Reconciliation of Accounting Assets and Leverage Ratio Exposures for CHIL EUR Thousands Total assets as per published financial statements Adjustments for derivative financial instruments Adjustments for securities financing transactions "SFTs" Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet Other adjustments Leverage Ratio Exposure Applicable Amounts 46,752,782 (443,927) 500,992 23,621,437 (3,134,782) 67,296,501 Table 7b: Summary Reconciliation of Accounting Assets and Leverage Ratio Exposures for CEP Eur Thousands Applicable Amounts Total assets as per published financial statements 46,752,664 Adjustments for derivative financial instruments (443,927) Adjustments for securities financing transactions "SFTs" 500,992 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet 23,621,437 Other adjustments (3,148,775) Leverage Ratio Exposure 67,282,389 Table 8: Leverage Ratio Common Disclosure for CHIL & CEP EUR Thousands On-Balance Sheet Exposures (excluding derivatives and SFTs) On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) Asset amounts deducted in determining Tier 1 capital Total On-Balance Sheet Exposures (excluding derivatives, SFTs and fiduciary assets) 18 CHIL CEP 38,955,205 38,955,205 (624,171) (638,282) 38,331,034 38,316,922 Derivative Exposures Replacement cost associated with derivatives transactions 377, ,848 Add-on amounts for PFE associated with derivatives transactions 1,416,484 1,416,484 Deductions of receivables assets for cash variation margin provided in derivatives transactions (209,120) (209,120) Total Derivative Exposures 1,585,212 1,585,212 Securities financing transaction exposures SFT Exposure 3,758,819 3,758,819 Total Securities Financing Transaction Exposures 3,758,819 3,758,819 Off-Balance Sheet Exposures Off-balance sheet exposures at gross notional amount 34,237,384 34,237,384 Adjustments for conversion to credit equivalent amounts (10,615,947) (10,615,947) Total Off-Balance Sheet Exposures 23,621,437 23,621,437 Capital and Total Exposures Tier 1 capital 6,935,309 7,929,806 Total Leverage Ratio Exposures 67,296,501 67,282,389 Leverage ratio Leverage ratio 10.31% 11.79% Choice on transitional arrangements and amount of derecognised fiduciary items Choice on transitional arrangements for the definition of the capital measure Fully Phased In Fully Phased In CRR Leverage Ratio Exposures

19 Table 9: Split of On Balance Sheet Exposures (excluding derivatives and SFTs) for CHIL & CEP Eur Thousands Total On-Balance Sheet Exposures (excluding derivatives and SFTs), of which: Trading Book Exposures Banking Book Exposures, of which: Exposures treated as sovereigns Exposures to regional governments, MDB, international organisations and PSE NOT treated as Institutions Secured by mortgages of immovable properties Retail exposures Corporate Exposures in default Other exposures (eg equity, securitisations, and other non-credit obligation assets) CRR Leverage Ratio Exposures 38,955,205 1,047,562 37,907,642 15,018, ,498 8,383, , ,399 13,293, , ,282 19

20 2.5. Capital Buffers The CRR requires CEP to hold capital buffers. credit risk The countercyclical capital buffer aims to ensure that capital requirements take into account the macro-financial environment. Its primary objective is to protect the banking sector from periods of excess aggregate credit growth. The designated authorities can set the countercyclical capital buffer rates between 0% and 2.5%. CEP is required to calculate its institutionspecific countercyclical buffer rate as a weighted average of the buffer rates that have been announced for each jurisdiction to which the firm has relevant credit exposures. Relevant credit exposures are as follows; specific risk securitizations The institution-specific countercyclical buffer rate consists of the weighted average of the countercyclical buffer rates that apply in the jurisdictions where the relevant credit exposures of the institutions are located. The following tables set out CEP s countercyclical buffer requirement for 31 December. Table 10: Geographical distribution of credit exposures relevant for the calculation of the countercyclical buffer 31 December Eur Thousands General creditexposures Trading book exposure Own funds requirements Breakdown by country Exposure value for SA Sumof long and short position of trading book Value of trading book exposure for internal models Of which: General credit exposures Of which: Trading book exposures Total Institution specific countercyclical buffer Countercyclical capital buffer rate Hong Kong 16, % 0.625% Norway 239, , , % 1.500% Sweden 776,522 9, ,181 1,121 60, % 1.500% Total 1,032,318 9, ,160 1,122 76, % Table 11: Amount of institution-specific countercyclical buffer 31 December Eur Thousands Total Risk exposure amount 27,901,043 Institution specific countercyclical capital buffer rate % Institution specific countercyclical capital buffer requirement 14,254 20

21 CEP is also required to hold a capital conservation buffer. The buffer was introduced 1 January at 0.625% of RWA s. The buffer is scheduled to increase by 0.625% per year until it reaches 2.5% of RWAs on 1 January The buffer held by CEP as at 31 December was 244 million. 21

22 3. Risk Management Objectives and Policies 3.1. Risk Overview To achieve its business strategy, CEP selectively takes risks. For, CEP identified the following risks as being material to its business: Board Sub-Committees CEP Board Risk Committee (BRC) Audit Committee Remuneration Committee Credit Risk, Nomination Committee Market Risk, Executive Committees: Operational Risk (which includes Legal Risk and Reputational Risk), Liquidity Risk, and, Pension Risk. An overview of CEP s capital requirements for Credit Risk, Market Risk and Operational Risk are provided in the following sections. The CEP Board considers that there is an appropriate risk management infrastructure in place, to identify, quantify, mitigate and monitor the risks taken in pursuit of its strategy. Risk Governance Framework There is a robust risk governance framework in place which provides oversight of the internal control environment, which includes identifying, qualifying and quantifying the risk profile of CEP and for ensuring key risks are well documented and managed. Risk management oversight is conducted at both Board and Executive level, supported by the workings of various committees including: Management Committee Assets & Liability Committee (ALCO) Credit Committee Operational Risk and Outsourcing Committee Financial Crime Governance Committee Related Party Lending Committee (RPL) Sub-Committees: Market Risk Committee Outsourcing Committee Local Regulatory Reporting Governance Committee Product Review Committee The Board Risk Committee (BRC) is governed by Terms of Reference (ToR) approved by the Board. The BRC has responsibility for the oversight and advice to the Board on the current risk exposures of CEP and future risk strategy. The BRC convenes at least quarterly and in met on six occasions. 22

23 Products Overview CEP is a key hub for the provision of Cash Management, Trade Products and Investor Services to Citi s corporate, public sector and financial institution clients ( ICG clients ) across EMEA. CEP also operates Citi Service Centres ( CSCs ) in Ireland, Poland and Hungary which provide key operational and technology support services to other Citi affiliates. CEP has a Consumer business and vanilla Markets Trading in its branches (Czech Republic, Hungary, Romania, Slovakia & Bulgaria). Scope and Nature of Risk Reporting and Measurement Systems (Credit Risk) CEP uses a global risk reporting system to manage credit exposure to its wholesale obligors and counterparties. Scope and Nature of Risk Reporting and Measurement Systems (Market Risk) CEP uses a global risk reporting system to manage market exposure, which aggregates exposure for reporting purposes. Scope and Nature of Risk Reporting and Measurement Systems (Operational Risk) CEP uses an Operational Risk Framework which comprises both systems and processes to manage operational risk, the output of which is consolidated to provide an Operational Risk profile Risk Mission CEP s Risk mission is to take intelligent risk with shared responsibility, without forsaking individual accountability. The management of risk is the collective responsibility of all CEP employees. CEP has policies in place to support effective risk assessment and management, some of which are adopted from its parent. Appropriate controls and tools are in place to manage, measure and actively mitigate risks taken by CEP. CEP s Risk Appetite CEP s Risk Appetite is set out in a Boardapproved Statement which describes the types and level of risk which the Board is willing to assume in pursuit of its strategy. It aims to manage business growth whilst restricting excessive growth within CEP s risk profile. The Risk Appetite Statement is reviewed in tandem with each Strategy review and is approved by the Board annually or more frequently as required. Three Lines of Defence Risk governance in CEP is based on a three lines of defence model: Each of CEP s businesses (First Line of Defence) owns and manages the risks inherent in, or arising from, the business, and is responsible for establishing and operating controls to mitigate key risks, performing manager assessments of the design and effectiveness of internal controls, and promoting a culture of compliance and control. CEP s independent control functions (Second Line of Defence), including Independent Risk Management, Finance, Compliance, Legal, and Human Resources (HR), set standards against which the businesses and functions are required to manage and oversee their risks, including compliance with 23

24 applicable laws, regulatory requirements, policies and standards of ethical conduct. These functions are involved in identifying, measuring, monitoring, and controlling aggregate risks, and are independent of front line units. In pursuit of its mission, CEP Risk Management acts as a strong independent partner of the business to support effective risk management across all risks to which CEP is exposed in a manner consistent with CEP s risk appetite. The Chief Risk Officer reports on the risk profile of the bank on an ongoing basis to the Board Risk Committee and the Board of Directors. CEP s Internal Audit function (Third Line of Defence) independently reviews the activities of the first two lines of defence. This is undertaken based on a risk-based audit plan and a methodology approved by the Audit Committee. Internal Audit provides objective, reliable, valued and timely assurance to the CEP Board of Directors, senior management and regulators regarding the effectiveness of governance, risk management, and controls which mitigate current and evolving risks and enhance the control culture within CEP. Risk Management Function Objectives and Policies CEP Risk Management is an independent function within the CEP legal vehicle. The CEP Chief Risk Officer (CRO) reports directly to both the Citi EMEA Chief Risk Officer and the CEP CEO. The CEP CRO has frequent, direct and independent access to the CEP Board of Directors and the CEP Risk Committee. CEP Risk Management maintains appropriate representation on all CEP management committees and other governance for a as appropriate. Risk Management approval is required for decisions concerning CEP s risk profile. CEP Risk Management aims to: Establish clear lines of authority and risk responsibility, including roles and membership of both management and risk committees, with the responsibility to monitor adherence to policies. Ensure Risk Management employees possess the appropriate talent, skills, and experience, and are in the right roles to perform the duties required of them. The CEP CRO leverages the Citi Global Risk Management structure to assist in the effective management of risk across the various CEP business lines and product groups. The objectives of CEP Risk are fully aligned with those of Citi in that effective risk management is of primary importance to its success. Accordingly, Citi has in place, a comprehensive risk management framework with appropriate policies to monitor, evaluate and manage the risks it assumes in conducting its activities. CEP Risk Management ensures full identification and transparency of risks, including aggregation, synthesis, and communication across business lines by frequently reviewing, discussing & reporting: CEP s Risk Appetite Statement and ensuring CEP risk taking adheres to the limits set by the CEP Board. 24

25 Stress & concentration testing and ensuring appropriate shocks and models are being leveraged to assess the risk to CEP. Key exposures, concentrations and positions that are identified as the most significant risks to CEP. appropriately captures operational risk within the business. The CEP branch network and reporting lines to ensure all branches are operating in line with the CEP Risk Governance Framework. Major credit, market, liquidity and operational risk exposures and the steps taken to monitor and control such exposures, including risk assessment and Risk Management policies. An annual, Board-approved, Independent Risk Management Plan outlining key deliverables which support and enhance risk management, progress against which is tracked and reported to the Board Risk Committee on an ongoing basis. CEP s Risk Management Managers Control Assessment (MCA), to ensure it remains fit for purpose and 25

26 4. Credit Risk 4.1. Credit Risk Overview Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations. Credit risk arises in many of CEP s business activities, including: Wholesale and retail lending; Capital markets derivative transactions; Structured finance; and Repurchase agreements and reverse repurchase transactions. The ICG Risk Manual guides credit risk management practices for CEP and Citi globally and has been approved by the CEP Board for the legal entity. Credit risk also arises from settlement and clearing activities, when CEP transfers an asset in advance of receiving its countervalue or advances funds to settle a transaction on behalf of a client. Concentration risk, within credit risk, is the risk associated with having credit exposure concentrated within a specific client, industry, region or other category Sources of Credit Risk There are number of credit risk sources throughout CEP, these include Wholesale Credit Risk, Available for Sale (AFS) and Consumer Credit Risk. Pre settlement risk (PSR), Clearing risk, Settlement risk, Typical financial reporting categories that include wholesale exposures are deposits with banks, debt securities held-to-maturity or available-for-sale, loans and off-balance sheet commitments such as unused commitments to lend and letters of credit. Available For Sale (AFS) AFS financial assets are those financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Consumer Credit Risks Cards & Personal Instalment Loans (PIL): Cards: The consumer cards portfolio includes all revolving and nonrevolving Citi-branded, Co-branded, Private Label cards issued to consumers. PIL: The consumer PIL portfolio includes all types of loans provided to individuals secured or unsecured, term/instalment or revolving, and direct or indirect. Wholesale Credit Risk: Direct risk, Contingent risk, 26

27 4.1.2 Counterparty Credit Risk Capital Calculations Counterparty risk is the risk arising from the possibility that the counterparty could default before the settlement of a transaction, without fulfilling its financial obligation. For regulatory purposes, CEP uses the standardised approach in determining counterparty credit risk capital requirements. These are based on External Credit Assessment Institutions ( ECAIs ) ratings for calculating Risk Weighted Assets (RWA). The measure of Exposure at Default (EAD) used to determine these requirements is described later in the document. For OTC (Over-the-Counter) Derivatives, CEP uses the Current Exposure Method (CEM) approach. CEM assigns to each transaction, a regulatory stipulated exposure based on the mark-to-market value and a measure of potential future exposure which is a percentage of notional exposure driven by residual maturity and the type of contract, i.e. interest rate, equities etc. Netting and margin collateral may be recognised as credit risk mitigants provided that they meet certain eligibility criteria. The following table was prepared in accordance the early application statement of the EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013. Table 12 represents Template 28: EU CCR3 of the EBA guidelines, and provides the breakdown of Counterparty Credit Risk exposure amounts as of 31 December. Table 12: EU CCR3 CRR exposures by regulatory portfolio and risk weight (Standardised approach) 31 December EAD in EUR Thousands Exposure classes Central governments or central banks Regional government or local authorities Public sector entities Multilateral development banks Risk weight Total Of which 0% 2% 4% 10% 20% 50% 70% 75% 100% 150% Others unrated 62, , , ,494-64, ,009-84,617 78,660 International organisations - Institutions - 4, ,964-1,239 (0) 456,438 55,662 Corporates - 198,233 74, ,672 8, , ,335 Retail Institutions and corporates - 3,430 13, ,456 with a short-term credit assessment Other items Total 62, , , ,392 8,604 1,992, ,